Differences Between Enterprise and Sdn Bhd for Business Owners in Malaysia

A common dilemma for entrepreneurs in Malaysia is whether to register their business as an enterprise or to incorporate it as a Sdn Bhd (Sendirian Berhad). Many start with an enterprise and later transition to a Sdn Bhd as their business grows. If you’re starting your business as an enterprise and are unsure about the benefits of a Sdn Bhd, here’s a detailed comparison to help you decide.

1. Laws and Regulations

Enterprise: An enterprise, governed by the Registration of Business Act 1956, has no separate legal status. The owner and the business are one entity, meaning you are personally liable for any business debts.

Sdn Bhd: A Sdn Bhd, regulated by the Companies Act 2016, is a separate legal entity. It can own property, enter contracts, and be sued independently of its owners. This structure limits your personal liability for the company’s debts.

2. Compliance Requirements

Enterprise: Requires periodic renewal with the Registrar of Business to remain active.

Sdn Bhd: No renewal is needed, but compliance requirements are stricter. These include:

• Appointing a company secretary within 30 days of incorporation.
• Lodging annual returns and audited financial statements.
• Updating company information such as director and shareholder details, paid-up capital, and registered address.

Both entities must adhere to additional regulatory requirements, such as applying for business licenses, registering employees with EPF and SOCSO, and filing taxes.

 

3. Ownership and Management

Enterprise: Can be owned and managed as a Sole Proprietorship or a Partnership (up to 20 partners). Owners can hire employees to help manage the business.

Sdn Bhd: Owned by shareholders who provide the paid-up capital and managed by directors. You can be the sole shareholder and director or have up to 50 shareholders. For more than 50 shareholders, the company must convert to a public company (Berhad).

4. Signing Agreements

Enterprise: Agreements are signed in your personal capacity, making you personally liable for any breaches.

Sdn Bhd: Agreements are signed on behalf of the Sdn Bhd, which bears the legal liability. Agreements must be approved by the board of directors, and authority to sign may be delegated to specific roles like the CEO or manager.

5. Business Income and Personal Income

Enterprise: Profits from a Sole Proprietorship or your share of a Partnership are considered your personal income.

Sdn Bhd: The company’s income stays within the business and is taxed separately. Directors can be paid remuneration, and shareholders receive dividends, which are based on retained earnings.

6. Taxation

Enterprise: Profits are taxed together with your personal income.

Sdn Bhd: Pays corporate tax on its profits. Directors’ remuneration is taxed as personal income, but dividends are not taxed again since they are paid from profits already taxed at the corporate rate.

 

7. Tax Benefits

For businesses earning annual profits over RM156,000, a Sdn Bhd can offer significant tax savings. For example, a Sdn Bhd earning RM156,000 would pay RM23,400 in taxes, while an Enterprise also owe RM23,400. Enterprise would need to pay 10% higher tax for every RM1 profit thereafter.

8. When to Choose an Enterprise

• You’re a solo entrepreneur starting with a small team.
• You want to keep operations simple and local.
• You prefer minimal legal requirements and less paperwork.
• You don’t plan to raise funds from public investors.
• You’re comfortable with personal liability for business risks.

 

9. When to Choose a Sdn Bhd

• You want to protect personal assets from business liabilities.
• You aim for long-term expansion and higher revenues.
• You plan to secure investment and need a clear management structure.
• Your business will be co-owned by multiple shareholders.
• You want to attract high-performing employees with stock options.

 

10. Transitioning from Enterprise to Sdn Bhd

Starting as an enterprise can be a good way to test your business concept. As your business grows, you can convert it into a Sdn Bhd to enjoy the benefits of limited liability and better tax treatment.

 

Conclusion

Choosing the right business structure is crucial for your entrepreneurial journey. An enterprise offers simplicity and ease of setup, ideal for solo entrepreneurs or small teams. However, as your business expands, transitioning to a Sdn Bhd provides better legal protection, tax benefits, and growth opportunities. Assess your business goals, risk tolerance, and future plans to decide the most suitable structure for your venture. Proper registration from the start can save time and money, paving the way for long-term success. Contact us now.